Gizmo Inc has outstanding 30-year bonds with an 8% coupon rate, annual payments selling for $1,150. Its preferred stock is selling for $75 and pays a fixed dividend of $7.5. Gizmo Inc. common stock is selling for $100 and has a beta of 2. The last dividend paid was $10 and dividends are expected to grow at 10% a year. The target Capital structure calls for 30% debt, 10% Preferred Stock, and 60% Common Equity.

Gizmo Inc. is considering the purchase of a new machine to replace an old one. The original cost of the old machine was $50,000; it is now 1 year old and has a market value of $33,500. It is being depreciated using the MACRS 3-year class life and can be used for three more years at which time it will be worthless. The cost of the replacement machine is $100,000, has a useful life of 3 years, and an estimated market value of $14,000 at the end of three years. Sales are expected to increase by $75,000 per year. The new machine will be depreciated using the MACRS 3-year class life.

What is the change in depreciation for year 1,2,3? and What is the after-tax cash flow from the sale of the new machine at the end of the third year?